The federal government has passed a number of laws to reduce income sprinkling (when an individual or a business attempts to reduce tax liability by issuing salaries to family members). To legally pass income to family members under the new laws, your business clients have to ensure their family members actually work for the company. For the most part, family members have to work at least 20 hours per week or own at least 10% of the company to receive paycheques. Your clients don’t have to prove their family members meet these criteria on their tax returns, but they should start tracking hours and financial contributions. If the Canada Revenue Agency wants more information or decides to audit the return, those records can be essential for proving the family member’s contribution. Although the change went into effect Jan. 1, 2018, your clients don’t have to worry about having records until they file their returns at the beginning of 2019 for the 2018 tax year.
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